January 17, 2019 – The Debtors’ Official Committee of Unsecured Creditors (the “Creditors Committee”), clearly deeply disappointed by its inability to block the Debtors’ choice of ESL Investments, Inc. (“ESL”) as the winning bidder in the Debtors’ auction for going concern assets, fully opened up a new battlefront against Edward Lampert, ESL and implicitly the Debtors themselves. Until the Debtors’ announcement on January 13, 2019 that ESL would be allowed to proceed with a bid at an auction scheduled for January 16, 2019, it was widely believed that the concerns of the Credit Committee (relating to ESL’s long history of related party transactions with the Debtors) had nudged the Debtors’ Board towards a liquidation; the path clearly preferred by the Creditors Committee. With those hopes emphatically dashed, it now appears that the Creditors Committee is no longer interested in the niceties required to keep open a dialogue with the Debtors and is willing to take on the Debtors and its Board in its pursuit of Lampert and ESL.

The vehicle for the Official Committee’s declaration of war is a rather esoteric motion related to a request to seal Court documents [Docket No. 1598]; documents relating to transactions involving ESL and the Debtors that the Creditors Committee has promised to keep confidential …but at this point would be perfectly happy to see made public. The heart of the motion, however, is about the Creditors Committee’s request for “leave, standing, and authority to commence and prosecute certain claims on behalf of the Debtors’ states,” that is, to sue Lampert and ESL as if standing in the Debtors’ shoes. As the motion points out, “the Debtors—led by Board members who were handpicked by and are beholden to Lampert and ESL—have capitulated to Lampert’s and ESL’s efforts to control the remaining assets of Sears and deprive unsecured creditors, already damaged by Lampert’s and ESL’s multi-year and multi-faceted scheme, of any chance of a recovery.”

The Creditors Committee motion begins dramatically and continues emphatically from there, “Shortly after 3 a.m. this morning, the Debtors officially closed the auction for the sale of substantially all of the Debtors’ assets with an announcement that ESL Investments, Inc. was the successful bidder. For myriad reasons that will be set forth fully before this Court in the coming days, the Creditors’ Committee opposes the proposed sale. At this critical juncture of the Debtors’ Chapter 11 Cases, the Creditors’ Committee seeks to file the Standing Motion and Proposed Complaint seeking standing to assert causes of action on behalf of the Debtors’ estates against Edward S. Lampert (‘Lampert’), (Chairman of the Board and former CEO of Holdings, ESL (Lampert’s investment firm and, with Lampert, Holdings’s controlling shareholder), and Kunal S. Kamlani (‘Kamlani’) (ESL’s President and a director of Holdings).

The Creditors’ Committee believes that these causes of action should be litigated in open court but is complying with its obligations under the Amended Stipulated Protective Order to file the Standing Motion and Proposed Complaint under seal because certain materials relied on or cited to in the Sealed Documents were designated by producing parties as “Confidential” or “Highly Confidential.” For the avoidance of doubt,the Creditors’ Committee does not believe that any of the information referred to in the Standing Motion or Proposed Complaint should be withheld from the public.”

Since its appointment, the Creditors’ Committee and its professionals have spent considerable time and energy investigating the prepetition transactions and conduct that led to the Debtors’ bankruptcy filing. The Creditors’ Committee has uncovered facts demonstrating that Sears’s downfall—while, like the financial struggles of other big box retailers, was caused in part by the Internet age and other factors beyond Sears’s control—also was precipitated by years of misconduct by Lampert, ESL, and others against Sears and its creditors. By accepting ESL’s bid to acquire Sears, made in large part through a credit bid of disputed claims, the Debtors—led by Board members who were handpicked by and are beholden to Lampert and ESL—have capitulated to Lampert’s and ESL’s efforts to control the remaining assets of Sears and deprive unsecured creditors, already damaged by Lampert’s and ESL’s multi-year and multi-faceted scheme, of any chance of a recovery. In the Sealed Documents, the Creditors’ Committee seeks standing on behalf of the Debtors’ estates to remedy the injustices that the Defendants have perpetrated on Sears and its stakeholders.”

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